4 ways to increase your landscape business’s value and boost its selling price
How sellable is your landscaping business? If a buyer were looking for a business in your geographic area, how would your business stack up to the competition in your area? Would you get top dollar if you put it up for sale?
Real estate experts tell homeowners to focus on the kitchen and the bathrooms if they want to get the best selling price. So, what should you focus on if you are selling your landscaping business? If you know me well, you know I’ve worked with many businesses in the landscaping industry. But, what I’m about to share relates to any business, especially construction type businesses.
Here’s where you should put your focus to increase the value of your landscaping business before you attempt to sell it.
1. Make it a more valuable business
Many landscape businesses compete on price — and if this is you, then customers view you as a commodity. That’s not how you want to be seen by a prospective business buyer. Yes, a service is intangible, so your task is to make as much of what your business does assume a physical aspect as possible. Don’t allow your company to fall into the commoditization trap. By addressing your customer’s unique problems and needs and by providing a well-articulated value proposition that is driven throughout your organization, you can avoid being viewed as a commodity. But you must not only say how you are different or better. You must be different and better.
One of the most effective ways to do this is to document your business. All of it. Create detailed descriptions of your services and how they differ from the competition. Generate a dossier for each of your customers. Transform them from just an address and monthly bill to an asset with contact information and a history. It builds value. Prepare a calendar that shows how seasonality impacts revenue – client by client. Now you’re creating depth. You’re helping a prospective buyer or operator plan better.
Establish value by signing contracts with your clients. One of the most important elements of your business you’re selling is this predictable, recurring revenue. And, these are strong pieces of evidence that a buyer is purchasing the ability to generate revenue reliably from a known source.
Your revenue stream can be threatened if it’s concentrated – either because it’s comprised of just a few large clients, or it’s represented by an agreement with a few property management companies or homeowners associations (HOA). If you aren’t planning to sell soon, try to mitigate this threat by expanding your customer base and revenue sources. If you do plan to sell soon, explore ways to demonstrate that these clients are pleased with the working association you have with them so the buyers can see that the revenue stream won’t dry up as soon as you’re out the door.
Your goal is to find and demonstrate ways that you are different from your competitors. It’s a conversation that might even extend to your equipment. Newer equipment can be a deciding factor for some purchasers, so long as there isn’t a ton of debt coming along with them. Even if it’s not new, can you provide documentation and assurance that your landscaping equipment has been well maintained?
The next owner of your landscaping business wants to buy something they can run and see a profit from. This potential is not evident if it’s locked in your head, you are a me-too service business or where you have deferred maintenance on your equipment – all of which has a negative impact on the value.
2. Be ready to explain why your business is the one to buy
You might find that a prospective buyer is a local competitor or entrepreneur who sees the opportunity to consolidate competing landscaping companies in a geographical area to achieve higher profit margins by reducing operational overhead. They understand the environment, so expect them to scrutinize your valuation. You might also attract prospects who want to buy into the industry.
Each of these types of buyers will look for specific value propositions. They will all want to understand how your pricing and estimating works and why it’s generating your targeted profitability. In your business, it may be necessary to have some work that is unprofitable in order to remain cost-competitive, but be prepared to demonstrate why these customers are a part of your operation. For example, you may only break-even or lose some money on the maintenance, but the extra work these clients generate can make for a profitable relationship.
3. Are your (legal) employees an asset or a liability?
Managers and long-term employees who’ve helped you grow the business and generate profits are key to the success of the new owner. Your employees will be the buyer’s connection to your customer base, especially after you leave. Spend the time and effort to document their roles and accountabilities and be prepared to give examples of how your staff will keep the business growing.
There’s no way to sugar-coat this: Undocumented workers are not an asset. Inc. Magazine reported last year that the federal H2B visa program was reduced to just 66,000 immigrants. It’s leaving many landscaping companies in the Northeast and Central U.S. scrambling to find documented workers willing to take on seasonal jobs. Historic low unemployment rates make it even more difficult to find qualified legal applicants.
During a nine-month due diligence period on the sale of a client’s business, the entire deal almost fell apart 30 days before the closing due to an unknown – the number of undocumented employees whose citizenship was called into question. You have a powerful boost to the asking price of your landscaping business if your business is based on a fully documented workforce. If that’s currently not the case, consider ways to get there.
4. Clean up your books
There’s no excuse for messy accounting — even kids are using apps to handle their allowance these days — so clean up your accounts receivable. Spend the time to research software that improves your estimating, pricing, job costing and receivables management. If you have clients whom you don’t know if you are making money on, then good accounting practices can fix that. If you have clients who are slow to pay, it may be time to be more aggressive with collections, placing liens on their properties/jobs, or calling sooner and more often to collect on past-due invoices. Be ready to explain how these situations are being remedied; fewer things can derail a potential sale faster than a prospect’s frustration with your financial practices and results.
Lead with what makes you worth the investment
It’s easy to think that all landscaping businesses are alike and that there’s not much to think about if you want to buy one beyond researching the financials. In many respects, though, that’s because most owners haven’t taken the time and effort to truly consider what differentiates their companies from their competitors.
If you want to sell your landscaping business for what it’s worth, you must put yourself into the mind of a prospective buyer. They’re going to be looking for your differentiated value proposition, how well your business is run and managed, and how reliable is the income stream and profitability. Be prepared to demonstrate and fit your business into their worldview. Most sellers are somewhat unrealistic in the value of their business. So, engage an expert – either a business broker, financial intermediary, CPA, valuation advisor or business coach – who can give you an opinion of value and suggestions to improve it.
These aspects of your business are crucial to understand even if you aren’t planning to sell it. They’ll help you make better decisions about running it today and that will make it even more valuable if and when you do decide that tomorrow has come and it’s time for a sale.
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